2009 | Bustos, Á., Galetovic A

The B.E. Journal of Economic Analysis & Policy

IF : 0,470 |

AI : 0

Vertical Integration and Sabotage with a Regulated Bottleneck Monopoly

Consider a bottleneck monopoly that sells “access” at a regulated price and may compete with independent downstream firms through a subsidiary. We systematically study the vertical integration decision and the optimal intensity of sabotage. The main results are as follows. First, unless the subsidiary is implausibly more efficient than independent firms, vertical integration never benefits consumers. Moreover, sabotage may prompt inefficient vertical integration, in which case welfare unambiguously falls. Second, if the subsidiary and independent firms coexist in equilibrium, the intensity of sabotage increases with the subsidiary’s market share and falls with the elasticity of the derived demand for access; only small subsidiaries do not sabotage. And the intensity of sabotage increases with the subsidiary’s size and the intensity of economies of scope. Third, when the bottleneck monopoly optimally excludes rivals, optimal sabotage is determined by a standard Lerner condition augmented to incorporate the direct cost of sabotage. Also, the intensity of sabotage falls with economies of scope and the subsidiary’s size.

 

Publicado en: The B.E. Journal of Economic Analysis & Policy

Artículo: ISI , Estrategia